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Updated Wednesday, February 18, 2009 10:14 am TWN, By Kevin Hassett, Bloomberg

Harvard narcissists with MBAs killed Wall St.

For two centuries, Wall Street survived wars, depressions, bank panics and terrorist attacks. Now Wall Street as we know it is dead. Gone. When a healthy and thriving person dies suddenly, a medical examiner may talk to family and friends to see if the deceased had recently changed behavior in some way.

Wall Street did change radically in recent years in one notable way. Twenty or 30 years ago, it was common for the best and the brightest to be doctors or engineers. By the 2000s, they wanted to be investment bankers.

When Wall Street was run by people randomly selected from the population, it was able to survive everything. After the best and brightest took over, it died the first time real-estate prices dropped 20%.

Are the two facts related? In other words, did Harvard kill Wall Street? The suspect certainly had the opportunity. If you walked into any major Wall Street firm a year ago and randomly selected an employee, chances are that person would either be from an Ivy League school like Harvard University, or have an MBA, or both.

The statistics are striking. Back in the 1970s, it was typical for about 5 percent of Harvard graduates to work in the financial sector, according to a recent study by Harvard economists Claudia Goldin and Larry Katz. By the 1990s, that number was 15 percent. It probably climbed since then.

And the proportion of those with MBAs grew as well. Economists Thomas Philippon of New York University and Ariell Reshef of the University of Virginia found that, in 1980, workers in finance earned about the same wages, on average, as workers in other sectors. By 2005, financial-sector workers earned 50 percent more than similar workers in other industries.

Philippon and Reshef went on to explore what caused the surge in wages in the financial sector. They found one of the key reasons was the increasing reliance on highly educated workers with post-graduate degrees.

Their results accord with anecdotal evidence concerning the hiring practice of Wall Street firms. A 2008 report in Fortune said that Goldman Sachs hired about 300 MBAs in 2007 and that, last year, Merrill Lynch and Citigroup were planning to hire 160 and 235 MBAs, respectively.

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